Insider trading and response to earnings announcements: the impact of accelerated disclosure requirements

Semih Tartaroglu () and Michael Imhof
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Semih Tartaroglu: Wichita State University
Michael Imhof: Wichita State University

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 2, No 2, 315-336

Abstract: Abstract This paper contributes to the debate on the consequences of increased disclosure regulation by investigating the effects of expedited reporting requirements of Form 4 filings, mandated by the Sarbanes–Oxley Act (SOX), on the market response to earnings announcements. We first confirm that SOX reduces opportunistic insider trading without deterring insider trading due to diversification needs, and that post-SOX, opportunistic insider trades more strongly reveal upcoming earnings surprises. We then document that, at the earnings announcement date, earnings response coefficients (ERCs) are lower when earnings are preceded by opportunistic insider trades. We conclude that accelerated disclosures of insider transactions mandated by SOX lend to more informationally efficient prices prior to earnings announcements. Our findings stand as one piece of evidence suggesting positive externalities from recent Securities and Exchange Commission (SEC) disclosure regulation and add to the scarce evidence on the consequences of changes in Form 4 filing requirements.

Keywords: Insider trading; Disclosure; Sarbanes–Oxley Act; Earnings announcements; Earnings response coefficients (search for similar items in EconPapers)
JEL-codes: G14 G18 G38 M40 M48 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-016-0592-y

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